Court: Missing COBRA Notice Led to Hefty Legal Penalties

Just how important are COBRA notices when an employee leaves your company or organization? One employer learned the answer to this question when a proper and timely notice was not provided and a former employee sued. Here’s what happened in one recent case.

The Facts of the Case

Tondalaya Evans was employed by national book retailer, Books-a-Million, for ten years, as an accountant and later as a Payroll and Insurance Manager. After multiple issues led to her termination in 2007, Evans accused the employer of inappropriate actions, including the failure to provide a COBRA notice detailing her right to continue her dental insurance. The U.S. District Court for the Northern District of Alabama agreed with Books-a-Million, dismissing Evan’s claims, except in regard to the COBRA notice.

At trial, the employer did not deny that Evans was entitled to receive a COBRA notice, but contended that the failure to provide the notice was unintentional. Citing problems such as a newly hired benefits coordinator, confusing records and complicated processes, Books-a-Million called it an “innocent mistake.”

The trial court, however, said there were too many “contradictions and evasions and disingenuous answers” for it to find the failure was inadvertent. A key component of the court’s decision was that the employer was given multiple opportunities to provide the notice, but consistently failed to do so.

In addition, the company’s staff members were unable to prove that a notice had been sent, and offered conflicting reports as to how they responded when Evans called to request an election notice. On that basis, the court found the employer acted in bad faith, intentionally withholding the notice. The court imposed a penalty on the company of $75 per day, beginning from the 45th day after the employee’s termination through the end of what would have been her 18-month maximum COBRA coverage period.

The Appeal

Books-a-Million then took its case to the U.S. Court of Appeals for the Eleventh Circuit Court, arguing that the per-day penalty was an abuse of the trial court’s discretion. However, the Circuit Court noted that the trial court’s decision hinged largely on the credibility of the employer’s own witnesses (staff members). As a result, the Circuit Court upheld the decision of the trial court.

In addition to the per day penalty which, when extended, totals $37,950, Evans was also awarded more than $45,000 in attorney fees and other court costs bringing the judgment to nearly $83,000. The size of the award was also influenced by the court’s reasoning that to a large, national company like Books-a-Million, a smaller sum would not be a sufficient deterrent against further misconduct. (Evans v. Books-A-Million, 2014 WL 3882506 (11th Cir. 2014)

Note: This case underscores the importance of providing timely and proper COBRA election notices to all qualified individuals who are eligible to elect COBRA. Upon violation of this requirement, the court has discretion to assess penalties of up to $110 per day, plus attorney fees and costs.

As illustrated in this case, the financial costs can quickly add up. While it is foreseeable that an employer might overlook a single notice in the course of day-to-day operations, this court’s decision should serve as a reminder to establish and diligently follow COBRA administration procedures designed to prevent such an occurrence.